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How to make a budget plan from scratch and stick to it.

Young couple creates a budget plan to manage their monthly expenses.

Making a personal budget plan has never been more important, especially on the heels of the pandemic. From staying prepared for a potential layoff to reaching important financial goals, creating a budget is the first step to establishing financial security and stability. But just how do you go about setting up a budget? And how do you stay motivated to stick to it?

Whether you are just getting started in your career or you’re simply looking to manage your money responsibly, this guide from Landmark National Bank is here to help. Below, we will debunk common misconceptions about personal budgets, as well as teach you how to make a budget plan from scratch while providing you with tips on how to stick to it.

What is a budget plan?

A budget plan is a comprehensive summary that tracks and compares your income and expenses over the course of a month. Simply put, a budget shows how much money you expect to make each month and compares it against your fixed and variable expenses.

Fixed expenses typically include things like your rent or mortgage, car insurance, and phone bill. Variable expenses typically include things like gas or groceries, as well as “fun money” for things like restaurants, clothing items, or non-essential shopping.

Debunking Budget Misconceptions

 When people hear the word “budget,” they automatically think about restricted spending or being “broke.” Fortunately, establishing a monthly budget doesn’t mean you have to hoard all your money or cut back on spending drastically. A budget is simply a tool that is designed to help you reach your financial goals, and that means your unique budget doesn’t have to be overly restrictive to work.

The Importance of Starting a Budget Plan

Although creating your own personal budget might sound like a drag, doing so will help you keep your financial health in tip-top shape. With a budget at your disposal, you can easily plan for and track how much money you will spend and save each month. This process allows you to do things like establish an emergency fund, create a savings account for a big purchase, or invest in your financial future without guesswork.

How to Make a Budget Plan: 6 Easy Steps

 Getting started with a budget plan is as simple as following these 6 steps:

  1. Select your budget template or application.
  2. Collect all your financial paperwork or electronic bill information.
  3. Calculate your monthly income.
  4. Establish a list of your monthly expenses.
  5. Categorize your expenses and designate spending values.
  6. Adjust your budget accordingly.

1. Select Your Budget Template or Application

The easiest and most efficient way to set up a budget is to use a premade spreadsheet in Excel or Google Sheets (many sources offer free versions), or via a handy mobile application. These tools come fully equipped with fields for your income and expenses in a wide range of categories. Additionally, if you choose to use a premade spreadsheet, it will come with built-in formulas that allow you to do things like calculate your budget surplus or deficit with ease.

2. Collect all your financial paperwork or electronic bill information.

Once you have your budget template or application selected, it’s time to collect all your financial paperwork or electronic bill information. This includes things like:

  • Bank account statements
  • Paystubs and W-2s
  • 1099 forms
  • Mortgage or rental statements
  • Utility bill statements
  • Credit card statements
  • Auto loan statements
  • Student loan statements
  • Phone bill and car insurance statements
  • Childcare expenses
  • And more

During this step, you want to find as much information about your income and fixed expenses as possible. The more thorough your budget is, the more accurate it will be as you sit down to plan each month.

3. Calculate Your Monthly Income

Now it’s time to calculate your monthly income. If you’re a full-time employee and collect regular paychecks, you can use your net monthly income (the amount of money you take home after taxes) for this. Happen to have a side hustle or alternative sources of income? Don’t forget to add these to your total monthly income, as well. If you’re a freelancer or a seasonal worker, you should base your total monthly income on your lowest-earning month over the past year.

4. Establish a List of Your Monthly Expenses

After you have calculated your monthly income, it’s time to create a list of all your monthly expenses. Aside from the fixed expenses you collected in step 2, this list should also include variable expenses like:

  • Groceries
  • Gas or public transportation fees
  • Entertainment
  • Restaurants
  • Non-essential shopping
  • And more

Because many of your variable expenses can fluctuate month-to-month, it’s important to calculate the average of all your expenses over the last 3 months. Make sure to use any relevant bank statements, printed receipts or e-receipts, or credit card statements to get the most accurate amount possible.

Landmark’s Spending Category Report

When you use Landmark National Bank’s online and mobile banking system, you have access to a spending category report. From the account summary page, choose the account you want, and then click the “Categorize” button from the options menu. You can then choose the timeframe you want to see, and you can even edit individual transactions to categorize them according to your personal preferences.

Once you have your timeframe and transactions categorized, you can select “Report.” You’ll then see a helpful chart that shows you the categories of all your expenses for the time period you selected.

Landmark Spending Report

5. Categorize Your Expenses and Designate Spending Values

Now that you have all your fixed and variable expenses documented, you can begin to categorize them within your spreadsheet or mobile app. If your goal is to establish an emergency fund, increase your savings, or pay off a certain amount of debt, make sure to include these individual items in the fixed-expenses list of your budget.

Note: Remember, your fixed expenses are expenses that require you to pay the same amount each month, while variable expenses are those that can fluctuate month-to-month.

Once your expenses are categorized, it’s time to designate spending values. Starting with your fixed expenses, make note of how much each one costs per month in the appropriate spreadsheet cell or mobile app field. For your variable expenses, make note of your 3-month spending average for each in the appropriate spreadsheet cell or mobile app field.

6. Adjust Your Budget Accordingly

With your expenses categorized and your spending values set, you can start to get a better idea of your financial well-being. For example, if you are making more money than what you are spending each month, you are in a good position to start setting aside money to reach your goals.

In this scenario, a good rule of thumb is to follow the 50/30/20 budget rule. This means that 50% of your budget should account for your essential expenses, 30% should account for non-essential expenses, and 20% should account for savings and paying off debt.

If you happen to make less money than what you are spending each month, you need to go through your budget with a fine-toothed comb. Where possible, try to cut back on unnecessary variable expenses. This includes shopping for non-essential items less, eating out less, and more.

If you are unable to balance your budget by cutting back on variable expenses, you might have to cut back on some of your fixed expenses (i.e., moving to a place with lower rent or mortgage payments, canceling your streaming service subscription, etc.) or figure out a way to increase your income.

Using Your New Budget

The only way your new budget will help you reach your financial goals is if you stick to it! That means you need to monitor, track, and plan for expenses in each category of your budget. Ideally, you will want to track and record your expenses daily rather than doing it all at the end of each month. Fortunately, many budgeting spreadsheets or mobile apps allow you to track your daily expenses or income totals with ease.

This type of granular expense tracking will help you uncover any negative spending patterns you might have, as well as help you keep track of all the purchases you make. If you happen to reach your spending limit in any of your categories, you will need to stop spending in that category or move funds from another category to cover costs. However, your goal is to keep your expenses equal to or less than your monthly income.

How to Stick to Your Budget Plan

Sticking to a budget can be a challenge, especially if this is your first time keeping track of every purchase you make. But rather than feeling overwhelmed or defeated from the get-go, just remember that the purpose of your budget is to help you reach your long-term financial goals. With a little practice and these tips below, you will become a budget master in no time:

  • Think Deeply About Big Purchases – Feel like splurging on a non-essential item that doesn’t fit into your budget? Rather than making a snap decision and falling behind in your monthly financial plan, take some time to think about it. Is it a necessity in your daily life? Does the value outweigh the financial stress it could cause?
  • Avoid Going Into Credit Card Debt – No matter how big your credit card limit is, it’s important to avoid going into debt whenever you can. If you make a big purchase on your credit card but you don’t have enough money to pay it off at the end of the month, you will spend more than your budget allotted on interest alone. Set up savings plans for the big-ticket items you want, instead.
  • Plan Out Your Weekly Meals – If you’ve gone grocery shopping on an empty stomach, you know how expensive it can end up being. Rather than spending more money than you have to at the grocery store or on takeout food, try to plan out your weekly meals. Find recipes you like, make a grocery list, and shop once a week to keep your spending in check. Grocery shopping online can also prevent those spur-of-the-moment purchases!

Take Control of Your Finances with a Comprehensive Budget Plan

When it comes to taking control of your finances, establishing a budget is the first step. With a monthly budget handy, you can monitor what you are spending and saving closely—and that gives you the chance to reach your long-term financial goals faster.

If you’re ready to make a budget plan, you need a bank that makes it easy to access and keep track of your finances. At Landmark National Bank, our personal checking accounts and online banking tools give you the flexibility to manage your money no matter where you’re at. Discover how we can streamline your budget plan with Landmark today!

 

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